South Korea’s Conglomerates

Executive Summary

South Korea has rocketed from poverty to global economic leadership in the last half-century on the strength of massive conglomerates that specialize in electronics, telecommunications, autos and steel. These family-owned firms, called chaebols, include international brands such as Samsung, Hyundai and LG. While chaebols helped lift the country out of privation and continue to provide a massive global platform, many South Koreans now question their outsized influence and close ties to government. The economy has stagnated since the early 2010s, and political and business leaders have been jailed this year over corruption allegations. Some experts say chaebols must be reformed by curbing nepotism and insider dealing if South Korea is to restart its economy and cure many societal ills, including government corruption, income inequality and a lack of startups. Yet unraveling such complex government and business entanglements could be a decades-long process.

Among the key takeaways:

South Korea ranks fifth globally as an exporter and 11th in gross domestic product.

The country has the world’s fourth-largest trade surplus; trade accounts for more than three-fourths of GDP.

Economists say South Korea’s dependence on exports, and on the chaebols that dominate its export trade, hold back the economy.

Tudor, Daniel, “Korea: The Impossible Country,” Tuttle Publishing, 2012. A Seoul-based journalist outlines South Korea’s rise from a Third World country to a global economic and cultural power. He questions if the country will continue on a path of dynamic change, or fade into “a rich yet aging society, devoid of energy and momentum.”

Articles

Cho, Mu-hyun, “The chaebols: The rise of South Korea’s mighty conglomerates,” CNET, April 6, 2015, http://tinyurl.com/yc2e8f66. A business correspondent based in Seoul details how chaebols grew to dominate the domestic economy with significant government assistance.

Jung, Soo Kyung, “As their job search drags on, South Korea’s young unemployed are more likely to skip meals,” Quartz, June 9, 2017, http://tinyurl.com/ycg9oe5f. Amid South Korea’s record-high youth unemployment, a new study found that unemployed young Koreans are skipping meals to save money.

Kim, Jae-kyoung, “Korean economy entering long tunnel of low growth,” The Korea Times, Feb. 28, 2016, http://tinyurl.com/y994jgpd. The South Korean economy has experienced low growth in the current decade because its major trading partners experienced an economic slowdown and domestic consumers became increasingly pessimistic.

Kong, Kanga, “Korea Inc. Ready to Kill Major Reforms No Matter Who Wins the Election,” Bloomberg, April 28, 2017, http://tinyurl.com/ya8ogpue. South Korean lawmakers have already struck down the most far-reaching proposals to reform the chaebol system. Some less drastic measures, however, are under discussion.

Kwak, Jung-soo, “Next chaebol generation gets failing grades for ability and legitimacy,” The Hankyoreh, March 31, 2015, http://tinyurl.com/ybxlqgyk. A study assessed the capabilities of 11 chaebol next-generation leaders and found that they had shoddy management ability or “illegal or questionably legal inheritance of wealth.”

Reports and Studies

“OECD Economic Surveys: Korea,” Organisation for Economic Co-operation and Development, May 2016, http://tinyurl.com/y7xh8wfg. The organization’s annual economic survey found that South Korea’s real output growth has slowed, its labor force will begin to shrink in the 2020s and the gender wage gap is the widest in the OECD.

“Population with tertiary education,” Organisation for Economic Co-operation and Development, 2016, http://tinyurl.com/j5penpc. The dataset shows that South Korea has the most college-educated young people of any country in the OECD.

“South Korea,” The Observatory of Economic Complexity, Massachusetts Institute of Technology, 2015, http://tinyurl.com/yct4sylw. This project by the Massachusetts Institute of Technology provides a visualization of South Korea’s exports, imports, trade balance, trade by destination and by origin and other topics. It found that Korea is the world’s fifth largest exporter and ninth largest importer.

Chiang, Min-Hua, “Chaebol’s Role in South Korea’s Economic Development,” East Asia Institute Background Brief, July 14, 2016, http://tinyurl.com/yap7v83b. This brief explores all facets of chaebols in South Korea’s economic development. It concludes that the government has continued to adopt policies that benefit the chaebols despite their negative impact on job growth, income equality and economic diversification.

Choo, Hakchung, Soon-il Bark and Suk Bum Yoon, “Korea: Poverty in a Tiger Country,” Handbook on International Poverty Research, p. 89, 1996, http://tinyurl.com/y88etkn9. Studies featured in this analysis of worldwide poverty indicate that South Korea has significantly reduced its absolute poverty rates from the 1960s onward.

The Next Step

Generation Gap

Kim, Hooyeon, “Generation Gap Aggravates Divisions in South Korea as Election Looms,” Bloomberg, April 26, 2017, https://tinyurl.com/yd4z8g4x. Millennial and elderly South Koreans have starkly different perspectives based on their differing experiences, and a growing number of Koreans view this gap as a serious problem. Older Koreans recall a time when the country was poor and war-ravaged, while young people see limited economic prospects for themselves.

Leavenworth, Stuart, “South Korea’s millennials could determine fate of U.S. alliance,” Miami Herald, Aug. 7, 2017, https://tinyurl.com/y7239442. South Korean Millennials do not have the same emotional attachment to the U.S. alliance as older generations and will be a decisive voice in the partnership’s future.

Ramirez, Elaine, “Meet The Entrepreneurs Helping South Korean Millennials Tackle Elderly Poverty,” Forbes, June 19, 2017, https://tinyurl.com/yd9a46ba. The Korea Legacy Committee aims to raise awareness that half of South Korea’s elderly are in poverty, with little help from pensions or family security.

Startup Growth

Jung-a, Song, “Rules and conformity frustrate South Korean tech start-ups,” Financial Times, Feb. 16, 2017, https://tinyurl.com/ybzhdpbw. Experts point to South Korea’s rigid corporate culture and educational system and outdated regulations as factors in addition to chaebols that hinder innovation and growth in the country.

Russell, Jon, “Korea’s top financial services startup lands $48m from PayPal and others,” TechCrunch, March 9, 2017, https://tinyurl.com/ybws44uz. The startup Toss has grown in two years by providing consumer-financing services that are more efficient than the old and cumbersome South Korean banking and payment systems.

Young-tae, Jin, “Korea drone startup Drogen expects sales to hit $8.9 million in 2018,” Pulse, July 31, 2017, https://tinyurl.com/yc56fc85. South Korean drone startup Drogen expects its sales to triple next year and has been successful by creating its drone software and hardware in-house, unlike its other Korean and Chinese competitors.

Organizations

Korea Development Institute263 (Bangok-dong, Korea Development Institute), Namsejong-ro, Sejong-si 30149, Korea +044-550-4114 www.kdi.re.kr/kdi_eng/main/main.jsp South Korean economic think tank with numerous areas of expertise, including macroeconomic policy, public finance, the industry and service economy and North Korea’s economy.

Korea FoundationMirae Asset Center 1 Building West Tower, 67 Suha-dong, Jung-gu, Seoul, Korea +82-2-2151-6520 http://en.kf.or.kr/?menuno=3722 Cultural organization founded in 1991 to promote goodwill between South Korea and the overseas community through exchange programs, fellowships and cultural activities.

Organisation for Economic Co-operation and Development1776 I St., N.W., Suite 450, Washington, DC 20006 1-202-785-6323 www.oecd.org/unitedstates/ Intergovernmental economic organization with 35 member countries that was founded in 1960 to promote world trade and the market economy.